and this pandemic was no different. in february 2022, richard ayvazyan, marietta terabelian, and tamara dadyan are arrested in montenegro. they are being held pending extradition to the united states. -- captions by vitac -- it's friday and it's time for "options action. i'm melissa lee, a choppy trading week the nasdaq continuing to grind lower. tonight we'll dive into the action and see if there's still a chance to profit betting on staples. plus a tectonic week for the two tech titans, netflix and tesla with a bit of revival, the other seems to be on low battery. the strategy and the options play straight ahead. here with us carter worth, mike khouw and our special guest mike sutland. we will begin with quick

thoughts on the week it has been a crazy week, carter. >> one way to decide whether any day or week or any period is bullish or bearish, you look at the high, low, and close lower high, lower close, bearish week that was simple. >> brian, what was your take >> i think when you look at the market, yeah, there was some whipsaw action as we close out the week i think really it's been all about the ten-year treasury right now and where that's going. basically every 1% tickup in the ten-year note, that's worth about 7 or 10% downside in the market so when the ten-year sort of ticked above 4% the other day, the market got real scared we saw s&p trade down to 3,500 then all of a sudden the ten-year reversed itself and the market found some ways to rally and now again we're back at that 4% level 4% super critical on the ten-year that's going to govern the market going forward that's about a high back in

2010 if we break through there,see close it could get scary the ten-year moving up in the back half. >> 4% marked the danger zone for the markets today, mike. that's when we sort of turned around when we broke 3, 4% to the upside. >> i think it's important we have to remember, 4% while it feels high in the context of the last 13, 14 years, we really need to remember that in a longer time scale, 4% is not a very high rate what is high and what we saw this week is inflation and unfortunately one of these things has to give, and i think we're going to see ultimately that the ten-year rates are going to go higher and that equity prices are going to go lower. and if we don't, the reason for that is going to be only that we're spiraling into an even worse economic condition than i think some of the bears would you mind even anticipate

so there isn't really a good out for us here, whether rate gos higher or lower. either way it doesn't really spell anything good, i think, economically or for equities >> as stocks continue to swing, you may be wondering where you could find safety from this volatility the chart master is hitting on one group. >> it's the group that's sort of done its job if you will, energy, and it continues to be great in the market. certainly absolute this is the xle, it you can see quite clearly we have responded to this trend line that is the wrong color. let's get a nice circle on there. look at this, bounce, bounce, bounce, bounce, and we bounced again, and so what we do know is we're not at hthe high the next chart is a relative chart. we made new relative highs, energy versus the s&p. it's simply a ratio.

you divide one by the other. it depicts relative strength that's what's important. it looks like it's going higher. let's look at schlumberger what we've got here, it's very similar to the xle it comes down to trend and it bounces. it comes down to trend and it bou bounces. now, how high is the correlation? it runs at about 80% those are perfectly mathematically similar lines, correlation's 80% or higher. look at the returns over the past two years, betting on schlumberger, betting on xle it's an area of the market you want to be in relative to most others. >> thanks for that, carter mike, what's the tradeoff? >> we're long schlumberger, long hall bert and another are streak it's tough in a markets like this to chase winners. five and a half years ago schlumberger had roughly comparable revenues as it does now. it had about half the earnings

but almost twice the enterprise value. if we go back, we can see that actually, we are well, well below schlumberger's all-time highs. right now it's trading about 15 times full year 2023 eps estimates which i think given the reduced multiples we're seeing in the current market still place it in a reasonable place. of course we've ngot to advance our oil production if you don't want to risk too much, one way to do that is to look out to december and buy a call spread. i was looking at the 42.5 call spread that was going to cost about 2.5 bucks. the idea here being you're going to risk less than purchasing the shares outright in the event that that stock along with everything else starts to go a little bit lower and what we do see in energy names is somewhat higher beta. we saw that in another name we owned today, devon which was one of yesterday's big winners and today didn't do as well. there's a little bit of leverage in these names if it does fall back to a level where you want to own the stock,

that would be a time to consider legging into a call spread risk reversal by then selling puts. i wouldn't do that yet. >> brian, what's your take on this trade, on schlumberger particularly >> i do like the options in this case, and what mike is doing is laying out a trade that actually owns an option that's closer to what we call at the money where the stock is actually raitradin. a lot of these premiums are really paying off. i like the trade in that sense the one thing that's cautious here when you look at schlumbe schlumberger, we did see puts uptick almost twice as much volume on the put. predicting maybe some downside but when i'm looking at the market back to carter's side, energy is an area you kind of want to be in. i'm looking at energy, consumer staples, i'm looking at health care those are sort of the safe haven place in this sort of environment where we're getting this rising interest rate

environment. and you know, unless the fed can control things, if they do energy may come down but if they don't this is the sector you want to be in and this is a cheat bet to play to the upside of that. >> carter what does integrated versus services versus nat gas, how do they look >> it's boom, bust, whereas if you're producing oil the way exxon and chevron are, i like those better as you saw in the chart, the overlay, the correlation is so high, you're going to get the move good or bad regardless of which one you picked. staples, the group considerably outpacing the s&p 500 this year. brian is focused on one name set for a big earnings pop which one are you looking at, bri? >> when you're looking at some of the consumer staples i think it's a sector we sort of went overweight in our fund and portfolio management that's an area that i kind of want to play to the upside procter & gamble, we saw good

earnings news out of pepsi i think that starts to trickle into the other consumer staples. when you look at year-to-date, what something like the xlp etf has done in market consumer staples, it's continued outpacing the rest of the broader market every time we get a bear market rally to the upside, the run is into the consumer staples and in health care. this is a name i want to play. it seems like the option markets is a little cheap after earnings typically, what we're seeing is option players looking for a 3.7% move in procter & gamble. if we get that kind of volatile move i want to own a call. it's the november 125 call i'm looking at it right around $4.50, so the break even 129.50 on the upside. i get unlimited upside potential. yeah, that's a little bit expensive of a premium, butting in this market condition where all the volatility in the treasury market seems to bleed into the equity markets, i want to own a call if i'm going to

play the upside. it's an easy way to overweight consumer staples by buying proctor gamble, plague play that earnings play. >> mike, what's your take? >> it's one of those things that seems a little bit counterintuitive when the market gets more l volatile, there's a sense people have that they've gotten too expensive, and that's when you want to avoid going out and buying single legs the way brian's doing here actually, it's often the opposite that's true the reason for that options premium end up getting range bound because people are anticipating a mean reversion in options premium. when volatility ticks up, sometimes options preem ya don't go up as much as they should sometimes when it goes down they are more expensive on a relative basis because the stocks aren't moving as much if you want to effect a spread, going skpoutout and buying a ca way he's identified makes a lot

of sense. >> the thing about proctor it right now is making three-year relative lows for its sector it is a massive underperformer either that is the problem or that's the opportunity we know that pepsi put up really good numbers look at the diversion in those two lines. they're highly correlated and then pepsi on the top has proctor sort of unwinds over the past four to five months that's a two-year chart. look at a 20-year chart. what you'll see is the same thing very much together until this recent sort of wipeout frankly in proctor the question is is this weakness the problem? or do you take advantage of that mispricing and say we maybe play this on the lodge side that's my hunch, it's so overdone relative you make a bet. >> so bad it's good. >> brian, you look kind of worried like you're on the ropes until the very end when carter was looking at the charts. >> we looked at that ourselves

when we were looking to buy that for clients, and that's why we added to that. we felt like in that sector area it has been so oversold. when you're looking at options, these november options not only do we have earnings next week, we get gdp numbers, we have the election we have the fed meeting. a lot of news and information to digest this market's going to fly around a little bit. and owning a call option to play something that is sort of oversold in my opinion is going to be a leader to the upside if there's any kind of rally. that's why i'm buying a call on this thing. tvs and evs, we're diving into two bellwethers that could be heading in opposite directions. for everything options action, check out our website and news letter. there's much more "options action" right after this. reach into your pocket, grab your phone and tweet us your question @optionsaction. if it's nice, we'll answer it on

air when "options action" returns. options action is sponsored by think or swim by td ameritrade thanks to avalara we can calculate sales tax on almost anything, anywhere, automatically. avalarahhhhh. what if tax rates change? ahhhhhh. filing sales tax returns? ahhhhhh. managing exemption certificates? ahhhhhh. business license guidance? ahhhhhh. does it connect with accounting? ahhhhhh. item classification? ahhhhhh. cross-border sales? ahhhhhh. what about? ahhhhhh. ahhhhhh. do you have those budget markups? thank you.

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welcome back, lots of questions in the last few weeks about volatility we thought we'd take early tweets last week one viewer asked just bought tesla october 240 calls expecting a significant bump going into earnings. do you agree mike, this week you're thinking about the same thing but not

quite in the same way. >> yeah, i mean, this is a difficult one, right because tesla is clearly, i think, the leader in the ev space. we've seen that. it's one of my holly index names. my wife drives a car, she loves it i tend not to lean against the companies whose products she favors because i think she's a better indicator than i am sometimes of what consumers' interests are. consumers are under significant pressure right now they're under pressure because we see inflation that is raising the costs of a lot of things they need. we also have rising interest rates and what that's going to do of course is reduce the amount of discretionary income that they have, and it's going to increase the monthly payments if they choose to finance for the purchase of a new car, especially expensive cars like tesla, which by the way have seen price increases of their own, even ignoring the increase in the payments that is going to come from these rising interest rates. you add to all of that the fact

that what i think are probably going to be optimistic numbers for full year 2023 trading at over 30 times that number. that seems a little bit rich to me, particularly in this environment. so i think if you're going to lean on the long side, calls are probably a better way to do it than purchasing the stock right here, not least of which of course because there's some potential that elon might actually have to sell some of it i'm inclined at this point to go the other way. if i had the stock i would look to hedge it. i was looking out to december, the 201.50 put spread. when i was looking at that earlier today, it was going to cost about 13.5 bucks. that's way to risk a portion of the stock price if you wanted to hedge or take a bearish bet. thing is a tough place to be in this environment, and it's going to remain that way for the foreseeable future. >> carter what's your take on the chart? >> i'm with mike it's a tough place to be

let's look at the chart and see if that is the case. we know this stock was as low as $12, what, just a couple of years ago. it hits 4.15 first iteration, that's the exact same chart having responded to this trend line beautifully, we have now of course undercut, put in the red arrow. so let's draw the lines. watch this next iteration. same thing, this has all the elements of a great winner 12 to 415 that's stalled and losing its way put that red arrow in again. let's go to the here and now, even up close and personal, so now there is the head and shoulders, and look at the authority of this level. basically we have a huge risk that we undercut and we plunged the downside final chart, same time frame just drawing the lines a different way, not good.

we are set up with risk that we undercut and dropped sharply i think it's a dangerous bet to be long here. >> brian, you with the other two guys a plunge lower? >> i am. i mean, look at that chart looks terrible if i'm an investor in tesla. it could seriously go to the town downside there is so much risk to the downside i want to have my short strike in that put spread a lot lower than where i think the stock can go if you look at pre-covid low up to the high, if you're a fibonacci kind of geek, the 51 replacement is down t if i have a whole portfolio i've constructed, i can lower consumer discretionary sort of allocation just by simply taking a put spread like this, which is, you know, tesla highly correlated to consumer discretionary, put a short bet so to speak, and lower my exposure to consumer discretionary very easily,

rather than mix everything around we do own tesla for clients. that's part of our nasdaq allocation we are way down in terms of growth and nasdaq and all of that buying this put spread makes a lot of sense. >> mike is not sour on all big tech into earnings next week you actually see some promise in net netflix. >> if i'm going to disparage one of my index names, i might as well support another one that's netflix this is a name that's been under considerable pressure. i don't think i need to tell any viewers how bad it has been. but one of the interesting things is on this down slope, this sort of ski jump that we've taken all the way down here, we've gone from a very high valuation business actually to one that is not super high anymore. we're talking about a company that's trading, believe it or not, about 20 times forward earnings maybe a little bit less. this is not priced in those nosebleed territories we used to see. the other thing is i think that we are not going to see a lot of

people pairing this. when we think about discretionary spending, we might be thinking about dining out we might be thinking about an expensive new car like a tesla or vacations but if you're not doing those things, maybe you're going to be spending a little p bit more time at home we add to that the fact that netflix has introduced a much more lower cost service. so for those trying to pair all of those subscriptions that they have, they now actually have a slot where they can fit in so this is a situation that i was actually taking a look at a call spread risk reversal. number one, options p s are elevated down around the 190, 185 level, i think it's probably not going to go much further than that if it does go to the downside >> carter. >> if tesla's a great winner that's stalling, this is a great loser that's developing or making a turn. you see the chart here you can see again how precise

the trend line is, and just this week we started to move ever so slightly above let's draw some lines, though. next iteration it's what a reversal looks like. it doesn't matter when you call it, cups and handles, heads and shoulders. it's the process of sequencing where you're not making a new low, it's the word developmental. let's put it all together, all three charts and what we've got is a down trend epic, 700 all the way down here to lows of 100, and now turning like it a lot. >> so brian, are you going to make it two for two, do you agree on this one? >> yeah, i mean, like i said, this might fall a little bit more towards consumer zm discretionary a little bit too much but to mike's point if the consumer discretionary side is i'm going to try and save some money and stay at home and get some entertainment value out of that, that's where i think the stock has already seen its huge fall

that 1940 0 level, if i'm selli put, if we get down to here, i'm okay owning it it seems like the stock has held onto that level. being short that put to finance this call spread to the upside, i think the market kps are so oversold recently, we may get the bear market another bounce we tried to push to 3,700 on the s&p earlier. if the market goes up i think netflix participates that way and helping to finance that put if the level where 190 is something where mike wants to get it, that makes sense to me i like this, i'm not a fan of consumer discretionary but netflix is maybe one you can play >> up next we're taking more of your tweets. "options action" right after this. "options action" is sponsored by think or swim by td ameritrade es, charts and orders to your style of trading. personalized education to expand your perspective. and a dedicated trade desk of expert-level support.

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good luck. td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back. time to take some tweets what do you feel about an in the money put on apple for 2024 expiration with things expected to get worse next year brian, take that one please. >> if i'm expected to get worse, apple is correlated to the s&p 500. it probably will get worse i only like buying put options after markets are at all-time highs and volatility or the vix

priced to the premium of options is at lows that's the time to pick up a put option, not now. i also think the second half of next year the fed will be done and the market will really like that i'd rather play a put on apple, january this year, 2023 option, maybe if that doesn't pay off, roll it to february or march i would not go out to january 2024 to buy a put. you're right to be bearish about the market >> all right, up next, final call >> announcer: "options action" is sponsored by think or swim by td ameritrade.

thanks to avalara we can calculate sales tax on almost anything, anywhere, automatically. avalarahhhhh. what if tax rates change? ahhhhhh. filing sales tax returns? ahhhhhh. managing exemption certificates? ahhhhhh. business license guidance? ahhhhhh. does it connect with accounting? ahhhhhh. item classification? ahhhhhh. cross-border sales? ahhhhhh. what about? ahhhhhh. ahhhhhh. do you have those budget markups? thank you. mmhm. [bubbles]

time for the final call. carter braxton worth >> all signs point to lower prices for equities, remain a bearish individual if you're playing. >> brian sutland. >> procter & gamble earnings next week, buying a november call to put consumer staples to the upside. >> mike khouw. >> still like energies including the oil service companies like

schlumberger and i think the worst has happened, is behind us for netflix. >> special thanks to brian for joining us on options action we'll be back next friday 5:30 p.m. eastern time. do not go anywhere, "mad money" with jim cramer starts right now. (dramatic music) ♪ i really can see the difference. i can see this hair coming in. i have hair on my head. i can brush my hair now. within two months, i've gotten my hair back. it's just like a second chance on life. ♪ no hormones, no surgery. ♪